While it is too early to predict the long term effects of Brexit, it is safe to say the impact will be significant for both Britain and the European Union. Investments in the UK have declined and companies are holding off on capital spending. According to Funding Circle, the volume of lending was approximately 10% lower in July this year as compared to July 2015. The British pound has slumped in value and there are concerns with respect to how Brexit will affect UK’s access to the European market.
The retail industry is also showing a slowdown. Data from Zoopla suggests that property prices in London have declined since the referendum and inquiries from homebuyers have also declined. British competitiveness in the export market is likely to decline and due to the decrease in value of the pound, the cost of Britain’s imports has increased. Inflation has also increased over the usual target of 2%.
Trade is definitely going to be negatively affected. After all, Europe is UK’s most important trading partner. The European Union accounts for 45% of the England’s exports and 53% of its imports. There is obviously a very deep economic relationship between the two regions and there is no way this important decision will leave both parties unscathed.
While we discuss the economic impact of Brexit, it is important to address how the EU countries will be affected as well. For example, Ireland is greatly dependent on the UK. In fact, 14% of its exports and 34% of its imports are dependent on England, Ireland’s trade market is very likely to be disrupted. With the UK stepping out of the comfort of the European Union, trade barriers are likely to increase and new policies and conditions are likely to be imposed. Similarly, investment of EU countries in England will most likely be affected. The Netherlands is UK’s second largest EU trading partner and has significant investment in the UK.
It is expected that things may become somewhat complicated for the IT industry as well. Since the UK will not be part of the union, complexity regarding import/export licensing for sensitive technologies is likely to increase. Red tape and approval processes and procedures will become more tedious and time-consuming. Another impact on industries in general in the UK would be the loss of EU immigrants. Nearly 2.1 million EU immigrants currently work in the UK. They are spread over in several industries including IT, engineering and construction. Since the European Union is fairly diverse, the loss of these immigrants who are multilingual and more culturally tuned to different regions of Europe will be felt across several industries. By leaving the European Union, many industries will have to bear the loss of multilingual talent, especially those who work on an international scale. The IT industry is especially concerned about this loss because skilled staff could shrink the available talent in UK’s IT industry.
The auto industry is another major sector that is likely to be hit negatively because of Brexit. UK is Europe’s second largest car market and the European Union is UK’s biggest buyer of its home-produced vehicles. The auto industry is already struggling, not just in Europe but on an international scale. Automakers in the US are facing challenges and Brexit will further cause more disruption within the industry.
US automakers Ford and General Motors are already struggling to sustain their profits. Similarly, the Volkswagen Group is a big importer to UK and with the falling pound, the company is likely to suffer. In addition, if the EU imposes tariffs on UK-made vehicles, automakers may have to move production into other areas. This could mean loss of jobs for many, and significant changes in the industry. It is being predicted that earnings per share for German, French and US manufacturers will decline by 8.9%. For Japanese automakers, the decline is expected to be around 15%. Analysts predict Mazda and Mitsubishi are likely to be hit the hardest.
When it comes to the energy sector, UK had played a very important role in liberalizing and developing cross-border energy markets. Assuming that the UK will continue to play a role and will be able to continue to participate in the Energy Union even after Brexit, there will obviously be a need to renegotiate the terms of such an arrangement. Since the UK is no longer part of the EU, it will have to comply with the European legislation and will no longer have a say in the implementation of new rules in the EU energy regulation. In fact, if it fails to comply or cooperate, it might end up losing out on the energy market. Therefore, it is safe to assume that UK will continue to support the EU energy policies as well as any initiatives taken by the European Union in this regard.
With the British pound at an all-time low and the devaluation of the Euro, the impact of Brexit is likely to be quite negative on the food industry. The UK depends on the EU for nearly one-quarter of its food supply. If the pound continues to fall against both the dollar and the Euro, imports will become more expensive. One of the advantages of being part of the EU was that buying and selling goods was quite smooth between the other 27 European states as there was free movement of labour, capital, goods and services. Now, the EU is less likely to be so accessible for the UK. British farmers will lose out on EU’s agricultural subsidies which according to estimates are equal to almost 3 billion pounds. In turn, this will result in an increase in prices of fruits and vegetables. Business prospects for the food industry will decline, and trading will be affected.
Another industry which will be affected by Brexit is the pharmaceutical sector. The UK pharmaceutical industry accounts for more than 10 percent of the country’s GDP. The industry itself employs nearly 70,000 people. There is no doubt that the impact of this important exit from the EU will not be minimal on the pharmaceutical industry. The pharma industry is fairly complex since the products have a direct impact on people’s health and quality of life. The external environment is inundated with rules and regulations. Research and development is critical for the growth of the industry and pricing is an area of significant importance.
UK’s decision to leave the EU will result in several regulatory issues for the industry. There will be market uncertainty and a more complex drug approval process which is likely to delay the introduction of new drugs into the market. There will also be challenges related to intellectual property, patents, and access to skilled workers. Future investment in research and development will also decrease. There are also concerns that if UK decides to develop its own domestic regulatory system, this would further add to the complication and will result in an unnecessary layer of regulation and bureaucracy. Since the European Union is a larger market for the industry overall, it might be possible that the local pharma market in the UK will take a back seat and will have to face the brunt of reduced investment and delayed introduction of new therapies. The European Medicines Agency (EMA) which is the main player when it comes to drug approvals in Europe had a strong presence in London. Now, with Britain’s exit, it is expected that EMA will relocate to another city in Europe.
When it comes to grants, the UK was one of the largest recipients of the European Research Council. By exiting the EU, Britain is no longer eligible for any such grants. In addition, UK scientists and researchers will lose out on priority projects in the EU and will no longer have access to European research facilities. All the possible avenues that would have opened up through the EU program for research and innovation, called the Horizon 2020 will no longer be available for British research councils and universities.
Overall, it is evident that UK’s decision to exit the European Union is likely to negatively effect most major industries. While most still can’t comprehend how the UK could take such a step, there are others who are more concerned about the consequences of this exit on the global economy, in particular, the European Union. While countries within the European Union are likely to be affected by this change, it is actually UK that is expected to be the biggest loser in this entire scenario.